Analysis: 3G spectrum holdings cloud Voda-Hutch merger

That's the question that needs to be answered by the ACCC, which is currently reviewing the proposed marriage.

The merged entity, to be called VHA, will hold 25 per cent in terms of mobile market share, but also own a potent share of the nation's 3G radio spectrum.

Unless either of the merging parties sell spectrum assets before the operations merge, VHA will hold 41 per cent of the 2GHz band used for 3G mobile services in Sydney and Melbourne and 33 percent in other capitals.

If the competition regulator decrees that this represents a threat to competition, analysts suggest it may force VHA to offload some of its 3G spectrum licences in some metropolitan areas.

There are precedents for a mobile operator's share of spectrum to be viewed as a competition issue.

During the 3G spectrum auction in 2001, for example, the Federal Government decreed that no party could own more than a quarter of available spectrum in a metropolitan area. Vodafone successfully bid for 10MHz of the 60MHz of paired spectrum made available in capital cities and 5MHz in regional Australia. Hutchison won 10MHz of the 60MHz in all capital cities except for Melbourne and Sydney, where it took up 15MHz of spectrum.

At that time, regulation of spectrum ownership was the domain of the communications regulator, the Australian Communications Authority (now the Australian Communications and Media Authority, or ACMA).

Mark Loney, executive manager of ACMA's pricing and policy branch says these regulations only applied to the spectrum auction not for the 15-year term of the licenses.

"Competition limits of this nature... do not apply once the allocation process is completed and the licences have been issued to the successful bidders," Loney said.

Post the auction process, he said, competition limits are the domain of Australia's competition regulator, the ACCC.

"The acquisition of a spectrum licence is treated as the acquisition of an asset for the purposes of the Trade Practices Act 1974," he said. "This means that the ACCC is responsible for [retroactive] competition issues involving spectrum licences." 

He said the need for ACCC clearance was identified as a completion condition of the VHA merger.

An ACCC spokesperson declined to comment on specifics but said that for any merger, its analysis reverts to Section 50 of the Act, which deals with the essentials of competition law.

Section 50 prohibits acquisitions that would result in "a substantial lessening of competition".

"I couldn't specifically comment on rules about spectrum," the spokesperson said.